The recent warm weather put a spring in the step of Homebase yesterday as the DIY chain shrugged off last year’s dismal performance to report strong first-quarter sales of barbecues, garden furniture and other outdoor goods.
Home Retail Group, which plunged into the red last year, said that both its Argos and Homebase businesses had beaten sales forecasts in the 13 weeks to May 30, helped by promotions and the demise of rivals such as MFI and Woolworths.
However, it remained cautious over the repercussions of rising unemployment and it expected margins to remain under pressure for the rest of the year, due partly to the impact of the weak pound on the cost of buying goods. The group sources more than 80 per cent of its product lines from overseas.
Terry Duddy, chief executive of Home Retail Group, said that while lower mortgage costs meant that consumers had more money, he was not a “great subscriber to the green shoots theory” and the company would continue to cut costs.
Homebase reported like-for-like growth in the quarter of 3.8 per cent, a marked contrast to the 10.4 per cent decline last year and the first quarterly increase for about two years.
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Mr Duddy said that, on a directly comparable basis, Homebase’s performance was “slightly ahead” of the results reported last week by B&Q, the rival DIY chain owned by Kingfisher.
“Seasonally related categories” had achieved growth of about 12 per cent.The chain also enjoyed strong kitchen sales, helped by keen pricing on its bespoke service and the collapse of MFI.
But, overall, the gross margin at Homebase fell by 2.5 percentage points because of increased Easter promotions. Total sales rose by 5.8 per cent to £465 million, helped by three store openings, taking its total to 348.
At Argos, like-for-like sales fell by 2.8 per cent — better than the 4 per cent fall the market had forecast — as a challenging environment for furniture and homewares offset good growth in items such as bicycles, camping equipment and consumer electronics. Total quarterly sales rose by 0.9 per cent to £937 million as Argos opened five new stores, taking its total to 735. But heavy promotions caused a worse than expected 0.75-point margin fall.
The group said that it was on target with its £50 million cost savings, of which £35 million will come in the current year, partly from announced redundancies totalling about 1,300. The shares rose 5p, or 1.9 per cent, to 271p.
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Brakes Group, the UK’s biggest food distributor, will announce a rise in sales and earnings today as proof that it is withstanding the impact of the recession. Brakes, which was bought by Bain Capital for £1.3 billion in 2007, is set to report a 13 per cent rise in sales to £2.05 billion for 2008. Earnings before interest, taxation, depreciation and amortisation (ebitda) rose by 9.2 per cent to £139.4 million. Matthew Fearn, finance director, said many of its catering industry customers had seen tough trading conditions but the diversity of its markets had helped to fuel growth.